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Chip Eng Seng proposes rights issue to raise S$96m for expansion

MAINBOARD-LISTED developer Chip Eng Seng on Thursday said that it plans to do a renounceable underwritten rights issue of about 156.5 million new shares at S$0.63 each, to raise net proceeds of about S$96.3 million for its expansion plans.

This will be done on the basis of one rights share for every four existing shares in the company held by shareholders.

Proceeds will be used to finance the possible expansion of its property development business in Singapore and overseas, as well as to fund possible strategic investments and acquisitions in the education segment of its business, which is in line with the group's recent diversification into the education sector.

Some money will also be used for the growth and operations of the group's hospitality segment, as well as for general and working capital.

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In support of the rights issue, controlling shareholder Celine Tang (also the company's chairman), her husband Gordon Tang, as well as group CEO Chia Lee Meng Raymond, have given irrevocable undertakings to subscribe for their portion of shares, which constitute about 31.51 per cent of the total number of rights shares.

Mr and Mrs Tang have been granted approval by the Securities Industry Council of Singapore not to have to make a mandatory general offer, should their shareholding in the company rise above 30 per cent.

Ms Tang has a direct and deemed interest of 29.73 per cent in the company.

The price carries a 7.35 per cent discount to the closing price of S$0.68 per share on Aug 22, and a 5.97 per cent discount to the theoretical ex-rights price of S$0.67, assuming the completion of the rights issue, calculated based on the Aug 22 closing price.

Chip Eng Seng said it has considered other fundraising options, including further bank borrowings and debt instruments from financial institutions or debt issuances under its S$750 million Multicurrency Debt Issuance Programme, but found a rights issue to be the most "suitable".

This is because its net debt-to-equity ratio is already about 1.8 times as at end-June 2019, and based on the three-year fixed rate notes issued in March 2019 under the programme, the cost of borrowing was 6 per cent per annum.

"The cost of borrowing depends on market conditions and may be higher for borrowings of a longer tenor," it said.

It has also calculated based on its last paid dividends and Aug 22 closing price, that the cost of equity would be cheaper at about 5.88 per cent per annum.

Therefore, a rights issue would strengthen the group's financial position by improving its balance sheet and capital base, while reducing its net gearing, the firm added.

At the same time, it will give the group greater financial capacity and flexibility to capitalise on investment and expansion opportunities and allow it to respond to such opportunities quickly, it said.

Chip Eng Seng will be seeking approval from shareholders in an extraordinary general meeting to be convened to vote on the issuance, among other things.

United Overseas Bank has been appointed the manager and underwriter for the rights issue.